Russian beet sugar production has been trending upward in recent years, but it still only accounts for about one-half of the country’s annual demand. To fill this deficit, Russia must import massive volumes of raw cane sugar — most of which is then refined in dual beet and raw cane processing facilities.

Sugar consumption in Russia is changing from a dominance of home use to a greater share of use generated by a growing food processing industry. But with flat to negative population growth (plagued by low life expectancy, especially among males, due to poor health care and heavy smoking and alcoholism), total sugar consumption is not likely to grow significantly in the years ahead.Production Trending Up After Period of DeclineThe sugarbeet production and processing industry is an important component in Russia’s agro-industrial sector and food supply. Sugarbeet harvested area in recent years has ranged between 800,000 to 1.0 million hectares (about 1.98 million to 2.47 million acres) and is forecast at 900,000 hectares for 2009/10 (September-August). Sugarbeet production is forecast at 26.0 metric million tons in 2009/10. The beet area has not increased significantly in recent years, mainly because of competition from spring-planted grains.Russia is a vast country, with an area of 17 million square kilometers — about 1.8 times the size of the United States. The terrain is characterized by a broad plain with low hills west of the Ural Mountain range; a vast coniferous forest and tundra in Siberia; and uplands and the Caucasus mountain range along the southern border adjacent to the Black Sea. Sugarbeets are grown in the western part of Russia, with about two-thirds of plantings extending south of Moscow (map below).

A large share of sugarbeet plantings are in the North Caucasus region, mainly in Krasnodar oblast (state). The other major producing area is the Central Black Earth region south of Moscow in Belgorod, Kursk and Voronezh oblasts. The remaining beet areas are in the Urals and western Siberia. About 50% of imports are processed in the North Caucasusregion due to the location of the Black Sea port of Novorossijsk, where most of the raw cane sugar is imported. Russia’s sugarbeet agriculture is located in a continental climate characterized by extremely cold winters. For example, a key site is Krasnodar, which is at 45 degrees north latitude and has winter temperatures averaging (Centigrade) 1.9 in December, -0.1 in January, and zero in February, with total average annual precipitation of 673 mm (about 26.5 inches). Given the climate, with planting in April- May and a harvest season of September-November, Russia’s sugarbeet farmers are periodically hit by yield and acreage losses due to frosts, both at planting and harvest times.Yields the past five seasons averaged 25.9 (metric) tons per hectare (about 11.6 short tons/acre) versus 20.1 tonsthe five previous years — up nearly 30%. Analysts familiar with the Russian industry believe that the focus of sugarbeet agriculture should be on increasing yields rather than increasing area. With a higher level of fertilizer and pesticide inputs, the use of imported high-quality seeds (mainly from Europe) and improved management systems, the potential for increasing yields from the present level is substantial.To process beets, Russia currently has 78 beet sugar factories — down from 96 factories in 1990. Russia’s beetfactories are small, with an average daily slicing capacity of 3,500 metric tons (about 3,850 shorts tons). This compares with the U.S. industry of 22 factories and an average slicing capacity of 7,400 short tons. According to staff of the International Sugar Organization, the Russian beet sugar processing industry is highly concentrated in terms of ownership, with the six leading companies responsible for about 70% of beet sugar production.Russia’s factories are forecast by USDA/Moscow to produce 3.2 million metric tons of beet sugar, raw value, in2009/10 — down from the year before due to reduced area and lower yields, but well above beet sugar production during the first half of the 2000s (Table 1).

Given the antiquated equipment in use at many mills, there is, periodically, a shortage of processing capacity insome regions when the crop is large. To upgrade processing, the Russian government’s Commission on Agricultural Issues has prepared a development program for the sugarbeet processing industry for 2010-12. The program is aimed at increasing beet sugar production to 4.3 million (metric) tons by 2012/13. The planned program envisions substantial investments to upgrade the processing sector, including funding from the federal budget and the remaining sourcing of funding originating from factories and bank loans. The program forecasts the beet sugar share of total sugar supply rising from 60% in 2008/09 to 73% in 2012/13. The relationship between processors and farmers has been changing in recent years. In the recent past,processors would assist farmers through barter deals. For example, instead of paying with money, beet farmers wouldpay sugar processing fees by relinquishing a percentage of their crop. Or, farmers would deliver beets to processorsand receive as payment refined sugar for as much as 70% of their beet deliveries. Currently, a payment to growerson a tolling basis is no longer the main system. The ISO staff reports that about 50% of Russian sugarbeet output isnow produced by the beet factories themselves, with most of the rest sold and bought in a normal monetary way. Farm-gate prices for sugarbeets have increased over the past few years, reaching 1,600 rubles (about US $53.40)per metric ton in 2008/09. In calendar 2008, wholesale prices for refined sugar were 16 rubles per kilogram at refineries, with retail prices for refined sugar varying from 20 to 35 rubles per kilogram, according to the Russian State Statistics agency.Beginning in January 2009, prices increased significantly — from 15.82 rubles per kilogram in that month to 22.70rubles in August. Prices started to fall in September 2009 after sugar from the new harvest season started to appearon the market. Prices are expected to rebound if world sugar prices continue to rise. To ensure that domestic prices remain viable for farmers and processors, the Russian government schedules seasonal import duties to be imposed on both raw and refined sugar imports. The objective is to make sure imports don’t flood the market and depress prices.Cane Sugar Imports Among World's HighestThe U.S. Office of Agricultural Affairs in Moscow forecasts total Russian sugar supply for 2009/10 at 6.9 million(metric) tons, with stocks and beet sugar production accounting for 57% and imports of raw and refined sugar filling the supply deficit. Imports of raw cane sugar are expected to total 2.5 million tons. They oscillate from year to year, depending on domestic beet sugar production levels. Imports of refined beet sugar have been fairly steadyat 300,000 tons for the past several years (Table 2).

According to Russia’s Federal Customs Service, imports of raw cane sugar are now mainly shipped in from Brazil. Last year, Brazil accounted for nearly 90% of raw imports and Cuba only 6% (reflecting the sharp decline of that nation’s sugar industry). Gone are the barter trade agreements under which Russia agreed to send Cuba Russian crude oil in exchange for Cuban raw cane sugar.There currently is only one standalone raw cane sugar refinery in Russia. The bulk of the imported raw cane sugar is refined at beet processing plants that have dual capacity to process raw cane sugar as well as sugarbeets. There are about 28 of these dual facilities in Russia.According to technical experts, no special investment is needed to operate a dual facility. (In the U.S., this type of operation is not practical, however — largely due to the location of U.S. beet plants. However, in the 1980s Spreckels Sugar Company did undertake this type of operation at some of its California plants. Interviews with former Spreckelsemployees revealed that the refining of raw cane sugar at their beet plants was successful technically.)While raw cane sugar is much needed in Russia to fulfill the supply deficit, domestic sugarbeet producers have lobbied the Russian government to establish long-term seasonal duties. The aim of these duties is to support producer incomes by ensuring a level of market stability in regard to prices.Currently, the seasonal duty ranges from $164 to $270 per ton, based on the New York Mercantile Exchange(NYME). When prices on the NYME are high, the Russian government sets the import duty at a lower part of the range, and vice versa. The timing of the duties is adjusted periodically, but they’re generally in place during the sugarbeet processing season in an effort to create more-favorable market conditions for domestic sugar farmers.Turning to refined sugar trade, the largest suppliers of refined sugar imports are Belarus, Moldova, Poland and Brazil. The Russian and Belarusian ministries of agriculture agreed in September 2009 that Belarus could export 150,000 (metric) tons to Russia in 2009/10 — the same level agreed upon for 2008/09. As noted on Table 2, Russia is expected to export 200,000 tons of refined sugar. This sugar is mainly shipped to Kazakhstan, Uzbekistan, Tajikistan, and Georgia.Population Stagnation Stymies Sugar Demand Expansion Russia’s sugar consumption in 2009/10 is forecast at 6.05 million metric tons, continuing a gradual upturn over recent years, but still well below the levels of the early 2000s. For Russia’s population of 141.9 million, per-capita sugar use is estimated at about 40 kilograms (88 pounds).Traditionally, about 60% of Russia’s sugar use has been for home consumption. Russians use sugar directly in their national drink (hot tea), for in-home canning of fruits, vegetable, jams and jellies, and in vodka (samogon) and fortified wine production. At various times, the government has increased the minimum price of vodka. When the legal alcohol market price is increased, it makes household production of vodka more economical than purchasing it — thusspurring in-home sugar consumption. According to traders, the remaining 40% of sugar goes to the industrial food production sector. The structure of Russia’s sugar demand is changing as the production of sugar-containing products grows, e.g., confectionery, canned fruits and jellies, and soft drinks. (No high fructose corn syrup is used in soft drink manufacturing.)There is a trend among the growing number of urban middle-class families to displace traditional homemade products with commercially produced varieties. According to the U.S. Office of Agricultural Affairs at the U.S. Embassy in Moscow, the long-term trend is for increasing the use of sugar in processed and convenience food products and soft drinks, and a reduction in sugar used in home canning. Russia faces a serious set of population and health problems that need to be reversed before a sharp upward movement in national sugar consumption can begin to emerge.As noted, Russia has a population of 141.9 million. But nationally, the country is experiencing negative growth (-0.467% in 2009, reported the U.S. State Department). A prime indicator is that the life expectancy for men is only 61.4 years, compared with 74.3 years in the U.S. The reasons for the dismal data are that Russians experience generally poor health care, compounded among men with a heavy incidence of smoking and alcoholism that leads to premature deaths.In October 2007, the President of the Russian Federation approved a demographic policy for the years 2008 to 2025. The program aims to increase life expectancy, reduce mortality, increase the birth rate, and improve the population’s health. If successful, it will take some time before the results show up in expansion in the consumption of sugar and other foods.